20 July 2018
Tayloe Draughon

Tayloe on Fintech and Regtech

Tayloe Draughon - CloudQuant

32Posts 171,657Views 20Comments
Finextra community

Financial Services Regulation

This network is for financial professionals interested in staying up to date on financial services regulation happening anywhere in the world. CFOs, bankers, fund managers, treasurers welcome.

CME Requires Guarantees on Trades

08 February 2017  |  5379 views  |  0

The CME Group just amended rule 574 stating:

“All connections to the Globex system, including direct connections of non-clearing members or customers, must be guaranteed by a clearing member that assumes financial responsibility for all activity through the connection. With respect to transactions given up to other clearing members, such guarantee is effective only until such time that the other clearing member accepts the trade.”

This is significant because the exchange is emphasizing the financial responsibility of the Clearing Member or the Executing Member that is giving up to another clearing member. Clearly this is in line with the direction of the Futures Industry Association (FIA) and their best practices.

This rule doesn’t specifically state the need for pre-trade risk controls. The need for pre-trade controls and entering only bona  fide transactions are covered in other rules. In this rule one can easily infer that it is impossible to guarantee any electronic order or trade on the exchange without having effective pre-trade controls in addition to margin in the account to guarantee the trade.

Yes. That is somewhat of a bold statement. Consider the following example.

I buy 10 Jellybean futures contracts on an electronic exchange. My account has barely margin enough for this purchase. Consider the case where I have another order to buy another 10 contracts that is open in the market. If it gets filled I won’t have enough margin to cover the purchase.

In this example the clearing member may not know that 10 more contracts are possibly coming into the account and that there will be the need for a margin call.

Effective pre-trade risk controls help the clearing members reduce the risk of margin calls.

Recommended Reading:


TagsTrade executionRisk & regulation

Comments: (0)

Comment on this story (membership required)

Latest posts from Tayloe

Algo Trading and Ethics

29 November 2017  |  1320 views  |  0 comments | recomends Recommends 0 TagsArtificial IntelligenceInnovationGroupFintech

Social Sentiment in Trading Algorithms

21 June 2017  |  4387 views  |  0 comments | recomends Recommends 0 TagsTrade executionInnovationGroupFintech innovation and startups

Japan Tightens Regulations on High Frequency Trading: 3 FINTECH Needs

22 May 2017  |  10344 views  |  1 comments | recomends Recommends 0 TagsTrade executionRisk & regulationGroupFintech

My First Algo in Python

01 May 2017  |  5495 views  |  0 comments | recomends Recommends 0 TagsTrade executionInnovationGroupFintech innovation and startups

Tayloe's profile

job title Senior Product Manager
location Chicago
member since 2016
Summary profile See full profile »
eTrading product manager, technology & FINTECH innovator

Tayloe's expertise

Member since 2015
31 posts20 comments
What Tayloe reads
Tayloe's blog archive
May 2018 (1)2017 (8)2016 (23)

Who's commenting on Tayloe's posts